The Superannuation Guarantee (SG) system—in conjunction with
voluntary superannuation contributions and a means-tested, government-funded
age pension—forms an integral part of Australia's retirement income policy.

As such, the committee is deeply concerned by recent analysis
by Industry Super Australia that indicates that employers failed to pay an
aggregate amount of $5.6 billion in SG contributions in 2013-14. The
committee is keenly aware that this amount represents 2.76 million affected
employees, with an average amount of over $2000 lost per person in a single
year.

The negative impacts of non-payment of the SG are pervasive and
affect several distinct groups: namely employees, employers and the government.
Evidence received by the committee clearly indicates that a failure to
adequately detect and address SG non-compliance causes long-term financial
detriment to millions of Australian employees, significant competitive
disadvantage to compliant employers, and an unnecessary impost to government finances
through additional reliance on the age pension. In this regard, the committee
is particularly concerned that the individuals most at risk of the negative
impacts of SG non-payment often come from the most vulnerable groups in
Australian society.

The committee is of the opinion that SG forms a vital component
of an employee's remuneration. The committee strongly believes compulsory
superannuation should be categorised as deferred wages that rightfully belong
to an employee. While the non‑payment of SG is immediately reflected in reduced
superannuation balances, in the long term it also robs an employee of the
benefits of investment earnings and compound interest. This is unacceptable.

The adverse economic impact of SG non-payment on employees is
stark. Employees forego their rightful SG entitlements, leading to a loss of
retirement income. This in turn lowers their standard of living in retirement and
potentially increases their reliance on the age pension.

Additionally, the committee is concerned that employers who
comply with their SG obligations must compete against non-compliant employers
with an unfair competitive advantage. Without an effective suite of enforcement
mechanisms compliant businesses may be incentivised to become non-compliant
which would exacerbate the current situation.

A more proactive stance

As a result of evidence received from numerous submitters to
this inquiry, the committee has concluded that the current approach of the
Australian Taxation Office (ATO) to identifying and addressing SG
non-compliance is inadequate. The committee believes that the ATO's current
reactive approach is problematic, and recommends that the ATO shift the balance
to a more proactive stance.[1]

Given the significant size of the fiscal impact of SG
non-payment on the government in terms of lost government revenue and increased
reliance on the age pension, as well as the detrimental impacts on employees
and compliant businesses, the committee feels that it is necessary and wholly
reasonable for the government to consider stronger, more proactive compliance
activities in the SG space.

The SG gap

During the course of this inquiry it became apparent to the
committee that due to various data gaps, it is difficult to precisely estimate
the extent of non-payment of SG in Australia. Although critical of the estimate
put forward by Industry Super Australia, the ATO was unable to provide the
committee with an alternative figure. The committee is surprised at the ATO's
apparent reluctance to engage with the issue of producing an SG gap,
particularly as the matter has been raised in numerous reviews dating back to
2010. The committee strongly believes that there is a compelling need for a reliable
SG gap figure produced yearly in order to track rates of SG non‑payment,
analysing which policies are effective, and ultimately minimising the problem.[2]

Addressing deliberate non-compliance

The committee is also concerned about certain instances of deliberate
and repeated non‑compliance with SG obligations by unscrupulous employers.
The committee is of the opinion that the current SG Charge (SGC) framework,
with its reliance on employer self-reporting, should be reviewed in order to
ensure that SGC penalties are strong enough to act as a proper deterrents.[3]

Into the digital age

Given the recent advances in data capture, sharing and storage,
the committee considers it is crucial that the SG system move towards a
framework, both in terms of design and operational activities, which fully
utilises the technological capabilities available in this digital information
era. The committee strongly believes that moving SG compliance from the 'paper
age' to the 'digital age' will enable a greater focus on proactive methods.
This will in turn increase the effectiveness of efforts to detect and remedy SG
non-compliance.[4]

Recommendations

The committee has made 32 recommendations intended to address
the significant problem of SG non-compliance:

Recommendation 1

2.31 In the interests of better informing the debate on the current state of
the SG system, the committee recommends the Minister for Revenue and Financial
Services publicly release the interim and final reports of the multi-agency
working group on SG non-comliance, as well as the 2016 review by the
Inspector-General of Taxation as soon as is practicable.

Recommendation 2

3.31 The committee recommends that the ATO prioritise its work on calculating
and publishing an accurate, reliable estimate of the SG gap. Additionally, the
committee recommends that the ATO commit to publishing the SG gap annually in
order for progress to be tracked over time.

Recommendation 3

5.26 The committee recommends that the government strongly consider
introducing amendments to the SGA Act to remove the $450 monthly threshold on
SG eligibility.

Recommendation 4

5.43 The committee recommends the government introduce amendments to the SGA
Act to ensure that an employee's voluntary salary sacrificed superannuation
contributions cannot count towards the employer's compulsory SG obligation, nor
reduce the OTE base upon which SG is calculated.

Recommendation 5

5.55 The committee recommends that the government strongly consider
introducing amendments to the SGA Act to require SG to be paid at least
monthly, and preferably in alignment with regular pay cycles.

Recommendation 6

5.71 The committee recommends that the government investigate options to
extend the ATO's current private binding advice and administratively binding
advice frameworks to make them available to workers as well as businesses.

Recommendation 7

5.85 The committee recommends the government review the definition of
Ordinary Time Earnings for the purposes of SG obligation calculations and
undertake an examination on the wider implications of any potential changes.

Recommendation 8

5.105 The committee recommends the government consider further initiatives
that will assist small business employers in managing their cash flow
responsibly in order to provide them the best possible chance of fulfilling
their SG obligations.

Recommendation 9

5.119 The committee recommends the government consider amending the SGA Act
to extend liabilities of unpaid SG to corporate entities, similar to the
expanded accessorial liability provisions for franchisors and holding companies
in relation to unpaid wages, as proposed in the Fair Work Amendment (Protecting
Vulnerable Workers) Bill 2017.

Recommendation 10

6.40 The committee recommends that the ATO continue to improve its
communication process with individuals to keep them promptly and meaningfully
informed of the progress of their employee notification.

Recommendation 11

6.42 The committee recommends that before entering into a payment plan to
recover SG from a non-compliant employer, the ATO be required to notify the
affected employee and gain their consent to the course of action.

Recommendation 12

6.44 The committee recommends the ATO give consideration to more proactive
SG initiatives, such as the options put forward by the Inspector‑General
of Taxation to incorporate random audits into its SG compliance activities.

Recommendation 13

6.46 The committee recommends that the government review ATO resource levels
to ensure that the agency is well-equipped to undertake effective and
comprehensive compliance activities to combat SG non-payment.

Recommendation 14

6.59 The committee recommends that the government consider a legislated
option for employees, or third parties acting on their behalf, such as unions
or superannuation funds, to take private legal action in the relevant courts
against their employers for unpaid SG.

Recommendation 15

6.62 The committee recommends that superannuation funds seeking default
status in industry awards be required to have a rigorous arrears collection
process in place.

Recommendation 16

6.72 The committee recommends that the government review the SGC regime and
its management by the ATO to ascertain whether it is adequate, with a view to
increasing penalties for deliberate and repeated acts of non-compliance by
employers.

Recommendation 17

6.85 The committee recommends that the ATO review all current compliance and
recovery activities related to unpaid SG to determine which ones should remain
with the ATO, and which ones could be transferred to, or shared with, the Fair
Work Ombudsman. As a starting point, the committee recommends that the Fair
Work Ombudsman begin to receive and act on SG non-payment complaints where
appropriate, rather than simply referring the affected employees to the ATO.

Recommendation 18

6.86 The committee recommends that the government consider increasing the
resource levels of the Fair Work Ombudsman to ensure it is properly equipped to
carry out any additional SG compliance or recovery activities it may acquire
from the ATO.

Recommendation 19

6.97 The committee recommends that the government investigate potential
legislative amendments to strengthen the ATO's current ability to recover SGC
liabilities through the Director Penalty Notice framework in order to stop
company directors undertaking frauulent phoenix activity and avoiding their SG
obligations.

Recommendation 20

6.105 The committee recommends that the government consider implementing a
Director Identification Number scheme to prevent individuals engaging in
illegal phoenix activity and repeatedly avoiding SG obligations.

Recommendation 21

6.112 The committee recommends that the government consider amending the
Corporations Act to ensure that the priorities in section 556 apply during all
liquidations, regardless of whether the business being liquidated was operated
through a trust structure.

Recommendation 22

6.118 The committee recommends that the government consider amending the SGA
Act so that nominal interest on SGC in the case of insolvencies apply up to the
date of liquidation, in alignment with other creditors as set out in the
Corporations Act.

Recommendation 23

6.119 The committee recommends that the government consider amending the SGA
Act to allow insolvency practitioners to pay outstanding SG contributions
directly to an employee's superannuation fund.

Recommendation 24

6.144 The committee recommends that the relevant government agencies
undertake further research into the fiscal and legislative impacts of an
expansion of the current Fair Entitlements Guarantee scheme to cover unpaid SG
entitlements.

Recommendation 25

7.11 The committee recommends that the government revise the information
that APRA regulated superannuation funds must include in Member Contribution
Statements to include a breakdown of each category of superannuation payment an
employee has received, as well as the employer it was received from.

Recommendation 26

7.26 The committee recommends that the ATO and ASIC review their data
sharing arrangements to ensure that information on insolvency cases is being
referred in a timely manner from ASIC to the ATO.

Recommendation 27

7.27 The committee recommends that the ATO and ASIC work together to collect
data on abandoned companies to produce a comprehensive picture on the levels of
unpaid SG contributions left by such companies.

Recommendation 28

7.29 The committee recommends that the ATO and FWO review their memorandum
of understanding to consider whether more frequent information exchanges would
improve their SG compliance activities.

Recommendation 29

7.32 The committee recommends that the ATO and ASIC increase their formal
cooperation with superannuation funds to coordinate measures around early
detection of non-payment of superannuation guarantee.

Recommendation 30

7.33 The committee recommends that privacy provisions which may inhibit
information flows between the ATO and APRA regulated superannuation funds be
reviewed and that the ATO seek advice from the Office of the Australian Information
Commissioner as to the extent to which protection of public revenue exemptions
in the Australian Privacy Principles might facilitate improved information
sharing.

Recommendation 31

7.54 The committee
recommends that the government strongly consider expanding Single Touch Payroll
to all businesses, with equal consideration given to how small businesses could
be best supported in adopting the initiative. The committee recommends that
Single Touch Payroll apply to all employees and contractors on an employer's
payroll. The committee also recommends that the government give consideration
to whether STP should require both the reporting and payment of tax and
superannuation obligations.

Recommendation 32

7.65 The committee recommends that the Fair Work Regulations 2009 be amended
to require:

the amount of earnings that the SG is calculated on;

any voluntary superannuation contributions due;

compulsory SG due; and

all amounts of superannuation (both voluntary and
compulsory) paid into an employee's superannuation fund (rather than just the
amounts accrued).